Question 1

Suppose economists at the World Bank develop a theory with a prediction that increased levels of foreign aid lead to increases in per capita GDP in the recipient developing countries.They find empirical evidence that is consistent with this theory.The economists are able to conclude that
A)the theory is valid,but should be subjected to continued scrutiny.
B)the theory has been proven correct.
C)the theory is always reliable.
D)the evidence is rejected by the theory.
E)the assumptions used in the theory have been proven correct.

Accepted Answer

While the empirical evidence is consistent with the theory, it is important to subject any theory to continued scrutiny and to understand that it may not always hold true in all circumstances or contexts. It is also possible that other factors could be contributing to the observed relationship between foreign aid and per capita GDP. Therefore, the theory should be subject to ongoing testing and evaluation.

Question 2

When using statistics in economics,the possibility of error
A)cannot be eliminated.
B)cannot be controlled.
C)cannot be evaluated.
D)is not considered to be important.
E)can be eliminated with more sophisticated statistical techniques.

Accepted Answer

In economics, the possibility of error in statistical analysis cannot be completely eliminated. Every statistical analysis involves some degree of uncertainty and error, which is why it is important to properly interpret and evaluate results. However, the use of sound statistical techniques and careful data collection can help to minimize the risk of error.

Question 3

Suppose economists at the Department of Finance in Ottawa employ an economic model that predicts the effects of an increase in the GST.After implementation of the change,researchers find that the empirical data is in conflict with the theory.They are likely to
A)modify the prediction in light of the new evidence.
B)ignore the empirical evidence and continue using the model.
C)modify the theory in light of this newly acquired empirical knowledge.
D)reject the empirical data as faulty because it did not support the theory.
E)modify the data to suit the definitions and assumptions.

Accepted Answer

Economists would likely modify the theory to better align with the new empirical evidence, as scientific practice involves updating theories based on new data.

Question 4

An economic model that contains a highly realistic set of assumptions is
A)useful because there is then very little difference between "theory" and "reality."
B)necessarily better able to predict the future.
C)certainly superior to a model whose assumptions are highly unrealistic.
D)more abstract than a model whose assumptions are further removed from reality.
E)not likely to be useful because of its particularized nature and its complexity.

Accepted Answer

A highly realistic model may become too complex and specific, making it less useful for general application and understanding, as it may not capture the broader principles or be easily adaptable to different situations.

Question 5

Choose the statement that best characterizes an economic theory.An economic theory
A)is only useful if its underlying assumptions are realistic.
B)will be useful as long as it is logically consistent.
C)must be judged on its ability to explain and predict real-world phenomena.
D)will predict more accurately if it contains a greater number of mathematical equations.
E)will be useful only if all human behaviour is rational.

Accepted Answer

An economic theory should be judged on its ability to explain and predict real-world phenomena. It may not always have realistic assumptions, but as long as it is logical and consistent, it can still be useful in understanding economic behavior. The use of mathematical equations is not necessary for a theory to be useful, and assuming all human behavior is rational is often unrealistic.

Question 6

Which of the following pairs of words have similar meanings?
A)induced and autonomous
B)endogenous and autonomous
C)independent and exogenous
D)dependent and exogenous
E)induced and exogenous

Accepted Answer

The answer of Which of the following pairs of words...

Question 7

Economists build models that abstract from the complexities of reality because
A)it is easier to do so.
B)they believe they gain a greater understanding of reality.
C)economists are not interested in reality.
D)economists do not understand the real world.
E)the complexities of reality are unimportant.

Accepted Answer

Economists build models that abstract from the complexities of reality because they believe they gain a greater understanding of reality. By simplifying reality and isolating specific variables, economists can analyze cause-and-effect relationships more easily and make predictions about future economic behavior. However, economists are aware that their models are not a perfect representation of reality and often make assumptions and approximations in order to create a more manageable model.

Question 8

If we seek to explain the number of seats sold on a particular air route,say Toronto to Halifax,over a one-year period,we would consider many variables.Which of the following variables would be endogenous to our theory?
A)the average salary of Canadian airline pilots
B)the number of airline seats sold on this route
C)the price of jet fuel
D)the number of fog days in Halifax
E)the unemployment rate in Toronto

Accepted Answer

The number of airline seats sold on this route is directly related to the topic we are trying to explain - the number of seats sold on the Toronto to Halifax route. Therefore, it is endogenous to our theory. The other variables listed are either unrelated or indirectly related to the topic, and are exogenous variables.

Question 9

A scientific prediction is
A)not testable.
B)a prophesy of how the future will unfold.
C)a causal statement of the following form: A will occur because B occurred.
D)a conditional statement of the following form: if A occurs,then B will follow.
E)always based on the law of large numbers.

Accepted Answer

A scientific prediction is a conditional statement, meaning it is a statement that if one thing happens (A), then another thing will follow (B). This is in contrast to a causal statement (C), which claims that A caused B, and a prophesy (B), which is not based on empirical evidence. The law of large numbers (E) is not always involved in scientific predictions.

Question 10

When an economist assumes that the owners of firms are motivated only by the desire to maximize profits,the economist most likely believes that
A)it doesn't matter whether or not the assumption is descriptively accurate; what matters is whether a theory built on the assumption predicts well.
B)the assumption is descriptively accurate,since surveys have been taken and the owners of firms have admitted that their only objective is to maximize profits.
C)the assumption is inaccurate,since surveys have been taken and the owners of firms have admitted that they care about more than just profits.
D)individuals entering business are quite narrow in their personal objectives.
E)all people enter business for their own selfish gain.

Accepted Answer

The economist is making a theoretical assumption about the behavior of firms in order to create a model or theory. The accuracy of the assumption is not as important as whether or not the theory predicts well. This is a common approach in economics, where simplifying assumptions are often made in order to create models that can be used to understand complex economic systems.

Question 11

Suppose that a particular theory predicts that on Monday,Wednesday,and Friday the stock market will rise and that on Tuesday and Thursday the stock market will fall.If an economist tests this theory and finds that over a six-month period the theory predicts accurately,the economist would likely say that the theory
A)has been proven correct.
B)is reliable.
C)is not in conflict with the evidence.
D)shouldn't be taken seriously.
E)is not useful because stock markets involve irrational human behaviour.

Accepted Answer

The economist would likely say that the theory is not in conflict with the evidence because it has accurately predicted the stock market's behavior over the observed period. However, this does not prove the theory correct or reliable in all situations.

Question 12

Economics is scientific because
A)economists routinely conduct controlled experiments.
B)individual behaviour is predictable.
C)economists routinely conduct laboratory experiments.
D)economists use data.
E)economists test hypotheses by appealing to empirical evidence.

Accepted Answer

The answer of Economics is scientific because
A)economists routinely conduct controlled...

Question 13

The scientific approach to economic inquiry involves
A)choosing data that will support the predictions.
B)using only endogenous variables in economic models.
C)testing the predictions with empirical data.
D)testing the reality of the assumptions of the model.
E)using only independent variables.

Accepted Answer

The answer of The scientific approach to economic inquiry involves
A)choosing...

Question 14

Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries.We can say that
A)the correlation is inconsistent with a theory that an increase in female education levels causes an increase in family income.
B)an increase in family income causes an increase in female education levels.
C)an increase in female education levels causes an increase in family incomes.
D)there is a causal relationship between family income and female education.
E)the observed correlation is consistent with a theory that an increase in female education levels causes an increase in family income.

Accepted Answer

The positive correlation between family income and female education levels suggests that an increase in female education levels can lead to an increase in family income. This is consistent with the theory that investing in female education can have positive spillover effects on families and communities. While it is possible that an increase in family income could also lead to increased female education levels, the observed correlation suggests that the direction of causality is more likely to be from education to income. However, correlation does not necessarily imply causation, so further research would be needed to establish a causal relationship.

Question 15

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature.When examining the determinants of individual farmer income,the average daily temperature is a(n)________ variable.
A)endogenous
B)exogenous
C)flow
D)dependent
E)induced

Accepted Answer

The average daily temperature is outside of the control of the individual wheat farmer, and is not affected by the farmer's income. Therefore, it is an exogenous variable.

Question 16

Choose the answer that best explains why economists build models that abstract from the complexities of reality.
A)Because the complexities of reality are unimportant.
B)Because they believe they gain a greater understanding of reality.
C)Because economists are not interested in reality.
D)Because this allows economists to conduct controlled experiments to test their theories.
E)Because economics deals only in the abstract.

Accepted Answer

Economists build models that abstract from the complexities of reality because they believe they gain a greater understanding of reality. By simplifying the real world, they can isolate the key factors at work and make predictions about how different variables will interact. This allows them to better understand the underlying mechanisms driving economic behavior and make more accurate predictions and policy recommendations.

Question 17

A hypothesis (or a prediction)is a statement about
A)how assumptions affect theories.
B)those things which we believe to be true,but cannot prove.
C)what will happen in the future.
D)the relationship between facts explained by the hypothesis.
E)how two or more variables are related to each other.

Accepted Answer

A hypothesis is a statement that proposes a relationship between two or more variables, which can be tested through research and experimentation.

Question 18

Suppose we have data for 1000 students for a period of one year.The data show that those students who spend more hours studying have a higher grade point average (GPA).We can say that
A)if hours of study time increase,then GPA will automatically increase.
B)having a higher GPA leads students to spend more time studying.
C)there is a causal relationship between hours of study time and GPA.
D)more hours spent studying leads to a higher GPA.
E)there is a positive correlation between hours of study time and GPA.

Accepted Answer

The data shows a positive correlation between hours of study time and GPA, indicating that as one variable increases, the other also tends to increase. However, correlation does not necessarily imply causation, so we cannot make definitive conclusions about the causal relationship between study time and GPA. Option A and D imply a causal relationship, which cannot be conclusively inferred from the given data. Option B suggests reverse causation, i.e., that higher GPA leads to increased study time, which is not supported by the given data. Option C suggests a causal relationship, but this cannot be confidently inferred from correlation data alone.

Question 19

Of the following,which is the most important characteristic of a successful theory?
A)the theory provides a basis for facts about economic behaviour
B)the theory could never be refuted
C)the theory adequately explains all economic behaviour
D)all assumptions on which the theory is based are true
E)the theory allows us to predict behaviour reasonably accurately

Accepted Answer

The most important characteristic of a successful theory is its ability to make reasonably accurate predictions about economic behavior. The other options, such as the theory being unrefutable or based on true assumptions, are not necessarily possible in the social sciences where there are many variables and unpredictable human behavior. A good theory should be able to explain certain economic behaviors and provide a basis for facts, but its predictive power is the most crucial factor.

Question 20

In order to test a theory,one must
A)develop a better explanation than the one presented.
B)present a series of normative statements and positive statements.
C)use assumptions that most closely reflect reality.
D)develop normative statements from the law of large numbers.
E)confront the predictions of the theory with evidence.

Accepted Answer

Testing a theory requires confronting the predictions made by the theory with evidence, in order to determine whether the predictions are supported or not. This involves gathering data through observation and experimentation, and comparing the results with what the theory would predict. None of the other options listed are necessary or sufficient for testing a theory.

Quiz 2: Economic Theories,Data,and Graphs

Suppose economists at the World Bank develop a theory with a prediction that increased levels of foreign aid lead to increases in per capita GDP in the recipient developing countries.They find empirical evidence that is consistent with this theory.The economists are able to conclude that

When using statistics in economics,the possibility of error

Suppose economists at the Department of Finance in Ottawa employ an economic model that predicts the effects of an increase in the GST.After implementation of the change,researchers find that the empirical data is in conflict with the theory.They are likely to

An economic model that contains a highly realistic set of assumptions is

Choose the statement that best characterizes an economic theory.An economic theory

Which of the following pairs of words have similar meanings?

Economists build models that abstract from the complexities of reality because

If we seek to explain the number of seats sold on a particular air route,say Toronto to Halifax,over a one-year period,we would consider many variables.Which of the following variables would be endogenous to our theory?

A scientific prediction is

When an economist assumes that the owners of firms are motivated only by the desire to maximize profits,the economist most likely believes that

Economics is scientific because

The scientific approach to economic inquiry involves

Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries.We can say that

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature.When examining the determinants of individual farmer income,the average daily temperature is a(n) ________ variable.

Choose the answer that best explains why economists build models that abstract from the complexities of reality.

A hypothesis (or a prediction) is a statement about

Suppose we have data for 1000 students for a period of one year.The data show that those students who spend more hours studying have a higher grade point average (GPA) .We can say that

Of the following,which is the most important characteristic of a successful theory?

In order to test a theory,one must